Agency Theory Explains Why Our Country Is In a Funk

November 9, 2009

Even before the polls opened on Tuesday, pundits and spinners were managing election-night expectations. The pros of politics and journalism can read the polls as well as the rest of us. Better, in fact. They knew Republican candidates in Virginia and in New Jersey had better-than-even chances to win their races.

One African-American talk-show host, and an unabashed supporter of the president, emphatically warned victories by Robert McDonnnell in Virginia and Chris Christie in New Jersey should not be interpreted as referendums on Barack Obama. Virginia, he pointed out, historically elects a governor from the party not occupying the White House. Then why bother, one wonders, to hold gubernatorial elections in Virginia?

Exit polls seemed to support the belief that Obama's job performance was not on the minds of voters. In Virginia, for instance, 56 percent of the voters said Obama was not a factor in their choices.

That's what they said, but other exit-poll data suggest thoughts of the president were present in the backs of their minds. In CNN's exit poll, 50 percent of Virginia's voters said they did not approve of the way President Obama is doing his job, and 94 percent of those voters picked the Republican candidate for governor. Forty-nine percent said they approved of Obama's job performance, yet 20 percent of them voted for McDonnell. That means about 47 percent of Virginia's voters who were split down the middle regarding the way the Democratic president leads the nation chose the Republican to lead their state. That's a big number political advisers from both parties will dig into deeper as they prepare for next November's important mid-term elections.

But, the spin is already in on that one, too, a full year in advance. We're already reminded that the party in the White House always loses seats in Congress in the mid-terms. Once again, they're managing our expectations instead of addressing our concerns.

The post-election analyses from both parties and from political observers fail to address the fact that our country is in a funk, pure and simple. Americans feel leaderless and confused. We cast a wary eye toward elected officials and institutions. Every day, we see lawmakers bickering instead of legislating; journalists inciting instead of reporting; preachers politicking instead of pastoring; and a president campaigning instead of leading.

And now, even after what could be described as a voting-booth warning shot, and in spite of overwhelming evidence that the economy is the runaway concern of our fellow citizens, Congressional leaders act like spoiled and petulant children in their drive to present to the president a healthcare overhaul bill just in time for Christmas.

There's a reason for this inane behavior from those we look to for leadership and guidance. Economists know it as agency theory; political scientists call it the principal-agent problem.

In its basic form, agency theory suggests that a corporation is a set of contracts between resource holders. An agency relationship occurs when principals hire agents to act on their behalf to perform certain services. In other words, stockholders hire managers to run the company. In a republic such as ours, voters elect individuals to represent them in government.

This theory, for our purposes here, shows that managers do not always act in the best interests of stockholders, and elected officials do not always act in the best interests of their constituents. This is why corporate executives have golden parachutes and other perks not available to lower-level employees and stockholders. And, it explains why lawmakers often take positions that place their political careers head of the wishes of the people who elected them.

In the end, though, the finger of blame points back to the people with the ultimate responsibility: you and me, whether in our roles as stockholders or voters. We have only ourselves to blame if we re-elect a president who we believe is not leading, and if we re-elect a Congress (with a 29-percent approval rating) that we like less than George W. Bush (with a 41-percent favorability rating) who's been out of office for nearly a year.